The round number has held, for now. Tesla’s market value dipped below $1 trillion during trading last Friday, the first time in months, as shares fell to an intraday low of $308 and the company’s valuation touched roughly $996 billion. The stock recovered enough to close back above the line, but the slide resumed this week, and the company that spent most of 2025 as a permanent resident of the trillion-dollar club now looks like a tenant on notice.
The selloff has a proximate cause. Tesla reported second-quarter earnings last week that missed on profit by a wide margin: operating profit of $398 million against $923 million a year earlier and $1.7 billion expected, with earnings per share of $0.33 against the $0.53 analysts wanted. Deliveries set a record at about 480,000 vehicles, up 25% from a year earlier, and revenue grew, but pricing, product mix, lower regulatory credits and heavy spending on AI and robotics compressed profit. Free cash flow turned negative. The stock fell about 12% the day after the report, its worst drop in years.
The selloff has been a windfall for the bears. Short sellers booked about $4.12 billion in one-day mark-to-market profits on the day of the drop, according to S3 Partners data cited by Bloomberg, and their paper gains for the year reached about $8.9 billion as Tesla shares fell roughly 30% in 2026. About 3% of Tesla’s shares are sold short, the highest short interest among the seven largest technology companies, and the bears have been adding to positions. Michael Burry, the investor known for his 2008 housing bet, disclosed a new short on the stock three weeks before the drop.
The earnings call did little to steady the stock. Musk repeated the robotaxi and Optimus promises he has made for years, introduced a new concept, the Megapod, a modular AI data center built from Tesla hardware, and offered no dates for when the businesses would contribute meaningfully to profit. Analysts who cover the stock largely maintained their ratings, but several cut price targets, and the response on the call confirmed that the market now treats Musk’s promises as background noise until they appear in financial statements.
The case against Tesla has three parts, and none of them is new. The first is the robotaxi program, which has moved slower than the company’s promises: paid robotaxi miles came in roughly flat quarter over quarter at about 900,000, and the active unsupervised fleet has been shrinking. The second is China, where BYD has overtaken Tesla in sales and price competition has eroded margins in the company’s second-largest market. The third is Musk himself, whose attention is spread across Tesla, SpaceX, xAI and a government role that has consumed his time, and whose repeated missed deadlines for self-driving have taught investors not to pay in advance.
The bulls have answers for each. Robotaxi service now operates in seven cities, the Cybercab production line is running, and FSD subscriptions grew by 380,000 in six months to about 1.48 million. Ark Investment Management, Cathie Wood’s firm, bought about $51 million of Tesla stock in the days after the selloff. RBC and Canaccord maintained their buy ratings, and Morningstar’s Seth Goldstein called the shares undervalued with a fair value of $450. The bull case is unchanged in its essentials: Tesla is an AI company that happens to sell cars, and the robotaxi, humanoid and energy businesses will justify a multiple that looks absurd against current profits.
That multiple is the crux of the bear argument. Tesla trades at roughly 150 to 175 times projected 2026 earnings, against an average of about 24 times for the rest of the largest technology companies. Every delay in high-margin software or autonomy revenue forces a valuation reset, and the market has been resetting since the earnings report. The stock is the worst performer among its megacap peers this year, and it is the most expensive.
The stakes of the $1 trillion line are partly symbolic and partly mechanical. Tesla is one of seven companies in the trillion-dollar club, and a sustained close below the mark would make it the first to fall out since the group formed, a headline that short sellers would use to argue the thesis has cracked. Index funds and passive strategies that weight by market value would trim Tesla positions, and options dealers would see their hedging books shift.
Retail investors have been buying the dip, a pattern that has repeatedly punished short sellers over the years. Vanda Research data showed Tesla was the most-bought stock among retail traders on the day of the drop, with about $42 million in net purchases, and the stock’s meme-era base has not abandoned it. The short interest, meanwhile, keeps the stock volatile in both directions: a good robotaxi headline can trigger a squeeze at almost any time. For now, though, the fundamentals are what the bears point to, and the fundamentals moved against the company this quarter.
For the bulls, the selloff is the entry price. For the bears, it is vindication in progress. Both sides agree on the variable that decides the fight: whether robotaxi and humanoid revenue arrives on a schedule the market can price, or whether the promises keep sliding. Until that resolves, Tesla will keep testing the line, and the short sellers will keep collecting premiums on every dip.
